A strengthened Capital Markets Union to focus on the EU’s underperforming IPO market
Foreword by Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, European Commission
I would like to congratulate LSEG on its second edition of the 1000 Companies to Inspire Europe report. The high-growth companies profiled in this report are truly inspirational examples of innovation, hard work, resilience and ambition for all entrepreneurs across the EU. Europe needs more high-growth companies: 77% of ‘Unicorns’ are located in the US and China, compared with only 10% in the EU’s 28 member states.
Building a financial system that can better meet the financing needs of all our innovative businesses is one of the priorities of the Capital Markets Union (CMU). This is especially true for equity financing. Since the publication of the CMU Action Plan in September 2015, we have made big strides in implementing a comprehensive package of legislative and non-legislative measures to scale up the supply of venture capital financing in Europe. This includes a recent deal on rules to strengthen venture capital funds and allow more possibilities for SMEs to access venture capital. This goes hand-in-hand with the Pan-European Venture Capital Fund-of-Funds, which will soon be up and running. We are mobilising up to €400m of EU funds as a cornerstone investment for this fund, which should go up to €1.6bn when combined with private contributions.
In June, we presented the mid-term review of the CMU Action Plan. It significantly raises our ambitions for integrating European capital markets, and further strengthens the focus on helping SMEs raise equity capital on public markets.
It underlines the need to make a success of the ‘SME Growth Market’ concept, a new form of multilateral trading facilities, which will be introduced by MiFID II in 2018. IPOs are the typical ‘exit solution’ for venture capital and private equity funds. But IPOs by SMEs declined in the aftermath of the crisis. The amount of capital raised on European junior markets fell from €11bn per year directly before the financial crisis to €2.8bn per year in the years that followed it. Many firms that would be perfect candidates for an IPO are not even considering taking this step, fearing costs and regulatory constraints.
The CMU mid-term review sets in motion an important workstream to ensure that our regulatory framework supports the future SME Growth Markets and small issuers. For instance, to help fast-growing companies go public, the Commission will review sectorial legislation (such as MiFID II or the Market Abuse Regulation) to explore whether some rules can be modified to lighten the administrative burden. We will also work with member states to identify and share best practices on financial schemes that help SMEs bear the costs of listing on public markets.
The success of our CMU is essential to break down barriers to cross-border investment and improve the ability of SMEs to access finance. And it will offer new opportunities for the European financial sector. We hope that all market participants will make use of these opportunities, and help us reach our commitment to make a success of this flagship project.